8 Steps to Establish Business Credit for Your Small Business

​If you want your small business to succeed, a crucial step is to establish business credit. Good business credit will benefit your business in several ways, including:
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• Obtaining more favorable payment terms from vendors.
• Enabling you to obtain better credit terms and interest rates from lenders.

The following are eight steps you need to take to establish business credit.

1)  Incorporate Your Business
Your business should be legally separate from its owners(s). Incorporating a business or setting up an LLC creates a legal separation of your business and your personal finances. And your business credit history is separated from your personal credit history.

This arrangement will minimize the way adverse events in your personal finances might affect your business credit history and vice versa. If your business should get into trouble, the personal assets of the owner(s) are protected. 
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2 )  Establish a Business Phone Number
Get a dedicated business phone line with a 411 directory assistance listing. Vendors, insurance companies, lenders, and credit issuers will verify your phone number when deciding if you are creditworthy. It’s best to get a landline or a VoIP (Voice over Internet Protocol) system - a cell phone will usually generate a red flag, and you may be denied credit.

3)  Obtain an EIN
An EIN is a federal tax identification number. Think of it as the equivalent of a social security number for your business. You need an EIN to open a business bank account in the name of the corporation or LLC and to file taxes.

4)  Open a Business Checking Account
Once you have your EIN, open a business checking account in the legal name of your business. Use this account for all the financial transactions pertaining to your business. Whatever you do, never use it for personal reasons.

• Obtain a business credit card, and be sure to pay your business credit card bill from your business checking account.
• Keep an eye on how you use your business credit. Some lenders like to see that you are using under 30% of your available credit before approving you for financing. 

 
5)  Get a D-U-N-S Number
Register with Dun & Bradstreet to obtain a D-U-N-S number. This is a nine-digit number used to identify each physical location of your business. Dun & Bradstreet is the primary credit reporting agency for businesses. Vendors will look up and evaluate your business’s D&B rating. A D&B account will help you get credit trade lines as you establish business credit and build it up with vendors and other creditors.

• You can also open business credit files with the other leading business reporting agencies: Experian, Equifax, and TransUnion.

 
6)  Establish Lines of Credit
You can build your business’s credit by setting up accounts with vendors who report payments to the various business credit bureaus. If your vendors say they don’t do this, think about opening up accounts with different vendors after you verify they’ll do the reporting.

7)  Pay Your Business Bills on Time or Early (Better!)
A history of late payments, especially severely delinquent ones, will bring down your business credit rating. Note that if you pay your bills early, you may get “extra credit” and build up your credit score more quickly. 

8)  Monitor Your Business Credit Reports
Fraudulent activity or errors on your report can impact your business’s credit rating and make it more difficult and expensive to obtain funding. So, make a point of checking your business credit reports for errors a few times each year. If you find something wrong, you can file a dispute with the business credit bureau.

Establish Business Credit: The Takeaway
Establishing business credit isn’t very complicated, but it does take some forethought and planning. The sooner you get started, the sooner your credit can begin to build.

Once you have established and built good business credit, it needs to be monitored and protected. Good business credit will help save you money, eliminate cash flow problems, and enable you to access the funds you need to grow your business.
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• Need Some Advice? Running a business successfully can be challenging. If you need help with any legal aspect of your business, talk to an attorney at Holmes Business Law. Give us a call at 215-482-0285.